Academic journal article ABA Banking Journal

A Funny Thing Happened on the Way to Recession

Academic journal article ABA Banking Journal

A Funny Thing Happened on the Way to Recession

Article excerpt

AH, SPRING! RENEWAL AND growth are in the air, or perhaps "Hope Springs Eternal" is a better way to describe recent economic and financial market trends. Whatever the case, the fixed income and stock markets are revealing a bit more confidence and risk taking.

According to the American Association of Individual Investors, small investors are showing a lot of confidence in stocks, if not their own future job prospects. The investor confidence index has rebounded smartly since March 14, 2008, the day Bear Stearns collapsed.

More signs of healing come from the narrowing spread between high-yield corporate bonds and the 10-year Treasury yield (see chart). Even bond issuance has perked up recently. This has prompted analysts, Wall Street CEOs, and Treasury Secretary Paulson himself to proclaim that the worst of the financial crisis may be over.

The economy is showing a bit more resilience of late, as well. Initial jobless claims are only flirting with recessionary levels and have trended down a bit. Housing demand no longer appears in freefall. The economy isn't growing yet, but at least the rate of economic descent doesn't appear to have accelerated. It is looking more likely that the economic stimulus checks being sent to American households will be enough to push GDP growth well into the plus column in the second half of the year. The 2008 fiscal stimulus bill may go down in history as the best-timed fiscal stimulus package ever! Better lucky than smart I always say. …

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